PERA’s Chief Investment Officer Addresses Market Drop

This week has been filled with uncertainty. As details about the current coronavirus outbreak emerge, people everywhere are wondering how this might affect them, their neighbors, and their families.

Before addressing what this means for investors, and PERA in particular, I’d like to acknowledge that the health crisis behind the decline in global equity markets is an issue that goes deeper than money. Our thoughts are with those who have become ill, and our hearts go out to those families who have lost loved ones. We are thankful for the hundreds of thousands of health professionals worldwide who are treating patients, taking measures to prevent the spread of this virus, and those studying ways to combat it.

At PERA, we are acutely aware of the concern our members might have about the increased market volatility brought about by this virus. We are in the business of providing retirement security, and news of market declines can be unsettling. At Colorado PERA, we invest strategically, meaning we remain invested in our asset classes (opens in a new tab)" rel="noreferrer noopener" href="https://www.copera.org/investments/asset-classes" target="_blank">primary asset classes throughout the market cycle. In other words, we do not attempt to time the market.

Our strategic asset association is determined by an asset-liability study the Board routinely undertakes. We can’t predict when market volatility will occur. However, we can—and do—incorporate risk into our investment decisions. The most recent asset-liability study, completed in December 2019, resulted in the following strategic asset allocation targets:

• Global Equities: 54%
• Fixed Income: 23%
• Private Equity: 8.5%
• Real Estate 8.5%
• Alternatives: 6%

In any given short-term period, the portfolio may perform better or worse than long-term expectations. Downturns are expected, and the swiftness with which they can occur often overshadows the rise in markets, even though positive market environments typically outweigh the negative impact of historical downturns. Global equities[1] have indeed lost 7.7 percent from the beginning of 2020 through the market close on February 27. However, when looking at the 10-year period ending on February 27, the overall return is 8.3 percent.

Instead of trying to predict what the markets will do from day to day, the PERA portfolio is positioned to deliver the expected long-term rate-of-return assumption (7.25 percent) over the long term (30+ years).

The markets don’t always go up. However, we are confident that PERA is well positioned to continue to invest through the ups and downs of the market cycle, providing the opportunity to achieve our long-term goals.

– Amy C. McGarrity

PERA Chief Investment Officer

[1]
As measured by the MSCI ACWI IMI (benchmark for PERA global equity asset class)

Global equityA type of investment that includes publicly traded stocks in companies based in the United States and abroad.Global equityA type of investment that includes publicly traded stocks in companies based in the United States and abroad.Asset classesA category of similar investments. Common asset classes include global equity (such as publicly traded stocks), real estate, and cash.AlternativesA broad category of investments that don’t fit into traditional categories like stocks and bonds.Asset allocationAn investor’s mix of stocks, bonds, and other investments. PERA’s strategic asset allocation is set by the PERA Board of Trustees.VolatilityA state of unpredictable activity in financial markets, during which prices can experience significant and/or unexpected swings in either direction. Private equityA type of investment in which investors purchase shares of a company that is not traded on a public stock exchange.Fixed incomeA type of investment that pays investors a fixed rate of interest over a set period of time. Bonds are a common type of fixed income investment.BenchmarkA tool used to measure performance. For example, an investor can use a stock index as a benchmark to measure his/her own investment performance compared to the market as a whole.Asset classA category of similar investments. Common asset classes include global equity (such as publicly traded stocks), real estate, and cash.Asset classA category of similar investments. Common asset classes include global equity (such as publicly traded stocks), real estate, and cash.